ViCA and Arbitrage Trading

The continuous growth of cryptocurrencies and the blockchain ecosystem has given rise to new methods of availing and holding to opportunities that can benefit you financially. The time when people just had to buy some coins and hold them for some years to see its price jumping to a massive point has almost gone. As for now, people cash every inch of the opportunity in the crypto market to get financial gains. From observing candles to buying at high and selling low, there are now tons of techniques famous among the traders. One of these techniques is arbitrage trading widely adopted by many experienced traders. Arbitrage trading at some point can be a very productive and profit-generating method if executed professionally.

Defining arbitrage trading:

Arbitrage trading is taking advantage or profit from the same asset or property due to its difference in value in different markets. For an arbitrage, the presence of the same asset in two different markets is necessary as the trader benefits from the inefficiencies in maintaining the value of that asset in both markets. The simplest explanation of arbitrage trading is buying an asset or product in a certain market and selling it at the same time in another market where its value is slightly higher and taking advantage of that minor price difference. Arbitrage trading is not a new approach and is being adopted for decades as arbitrageurs exploit the market inefficiencies. Arbitrage trading depends and is related to the market efficiency theory stating that a market can be considered as purely accurate and efficient if there is no chance of arbitrage and all assets must hold the same value or price at any point.

It is the case with arbitrage trading in cryptocurrency too. Any person taking advantage of the price difference of different cryptocurrencies at different exchanges is doing crypto arbitrage. This can be understood by an example; if the price of bitcoin is around $48,000 on Binance exchange while it’s $48,300 on Coinbase then a person who bought bitcoin on Binance can transfer it to Coinbase and sell it there at a slightly higher rate by taking advantage or profit of $300 instantly. It’s like making money out of thin air just due to inefficiencies in the exchange prices. Currently, there are over 300 exchanges that allow spot trading and do have a minor difference in the market price of different coins meaning that the opportunities of arbitrage trading in crypto are almost limitless and there is no doubt that people capitalize on these differences in a matter of few seconds. Arbitrageurs are extremely sharp and act instantly as the uncorrelated price of cryptocurrencies on exchanges is for a mere glitch that can be a benefit or a loss depending upon your speed.

Why is there a price difference on exchanges?

Most of the crypto exchanges work independently and are not related or interconnected as they have their system for monitoring of sale and purchase of coins and the corresponding price determination. The price for every coin is based on its recent transactions, market value, and the instant demand and supply in the market. Therefore, every exchange has a slight difference in prices of assets in comparison to other exchanges and can be updated in a couple of seconds. Although some small exchanges are dealing with fewer currencies and following trends and pricing of large exchanges. Arbitrage trading might seem like exploitation of the exchange’s inability to update the prices at the right moment but it is entirely a legal process to take advantage or make a profit over inefficiencies in the market. Crypto arbitrage move exchanges to invest more in making their system accurate and efficient as traders take profits over the price difference.

Different types of arbitrage trading:

There are different types of arbitrage trading depending upon the strategy used in capitalizing the market difference. These types are briefly discussed below:

Deterministic Arbitrage:

This is the most common form of arbitrage trading as traders take advantage of the price difference of a coin or digital asset on different exchanges simultaneously. The traders look for exchanges, which have inefficiencies and capitalize them by taking minimal profits.

Triangular Arbitrage:

In cryptocurrency, several exchanges offer trading between pairs of different cryptocurrencies meaning that you can buy or trade XRP with BTC, ETH, ADA, and vice versa. Traders and arbitrageurs take profit from the slight difference of pricing of three different pairs. As he utilizes BTC to buy ETH to exchange with ADA and then buy back BTC again with ADA allowing them to trade between three different trading pairs and taking profit if the trading pairs have inefficiencies in their pricing. This is done on a single exchange that offers different trading pair options.

Statistical Arbitrage:

This method of arbitrage trading is the most advanced one as traders use highly sophisticated bots and software to automatically make a profit and undergo trading whenever a difference of price is detected. Arbitrageurs can run thousands of trades in a minute through these bots increasing their profit margin exponentially.

ViCA project is designed with the help of a unique system, which takes advantage through arbitrage trading capitalizing price differences of digital assets. ViCA takes profit through this trading technique utilizing exchanges like Upbit and Binance and then investing the amount generated to buy back ViCA tokens from the market. The revenue generated from arbitrage trading will also be stored as the project’s basic seed money and consequently generate compound interest too. As the seed money keeps increasing, the value of the ViCA token will also increase benefitting customers and the scope of ViCA will keep evolving. The continuous arbitrage trading performed by ViCA will be streamed live continuously on YouTube. Therefore, ViCA’s overall revenue generation technique is sustainable and based on arbitrage trading.